The Canadian dollar had a positive day following news that the United States and Mexico had reached an "understanding" on the way to a trade deal, while Canada's Foreign Affairs Minister Chrystia Freeland is leaving for Washington on Tuesday. The debate rages on in Canada whether this is good or bad news for Canada, while Freeland's office responded in an email with "Canada's signature is required," and "we will only sign a new NAFTA that is good for Canada and good for the middle class" and "we will continue to work toward a modernized NAFTA."
The loonie gained 37.9 basis points to end at $0.77135 CAD/USD, its highest close since June 8. As seen on the attached graphic, potential resistance lies at $0.77505 CAD/USD, the 33% retracement of the move from spot dollar's September high to June low. Further resistance lies at $0.7754 CAD/USD, the upper end of a channel pattern traded since reaching the June low. Potential support lies at the lower end of the channel at $0.76193 CAD/USD.
The middle study shows investors increasing their bearish net-short position in the Canadian dollar in each of the past two weeks, although the position held remains near the smallest net-short position held over the past nine weeks. Short-covering on the part of these traders is likely supportive feature in Monday's trade.
The lower study shows the stochastic momentum indicators on the daily chart, with indicators nearing overbought territory. Note the mid-August crossover of indicators was not the most bullish of signals given that the crossover was above 20% or the oversold territory.
The TD Bank feels Monday's move will be short-lived as attention turns back to central bank policy and that "the next few weeks look bad for the CAD."
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